DEALBOOK; A Thriving Business in Mortgages Lifts Profit at Wells Fargo

By NATHANIEL POPPER

Published: July 14, 2012

5:37 p.m. | Updated

Wells Fargo reported its 10th consecutive quarter of earnings growth, propelled by a booming business originating and refinancing mortgages.

The bank's second-quarter profit was $4.6 billion, a record for Wells and a 17 percent increase from the $3.9 billion profit it reported a year earlier. Wells, which is based in San Francisco, earned 82 cents a share for the quarter, above the 81 cents that analysts polled by SNL Financial had expected.

Wells has largely skirted the trading and derivatives controversies that have hit many of its large competitors, and it recently passed JPMorgan Chase to become the largest American bank by stock market capitalization. (JPMorgan has lost $25 billion in market value in recent months, after it disclosed a trading loss that could top $7 billion.)

Wells has expanded its Wall Street operations, like commercial lending, as others have cut back. But it has continued to rely largely on its consumer banking business, and particularly its mortgage lending division, which has benefited from record-low interest rates.

The bank originated $131 billion of mortgages in the second quarter, up from $129 billion in the first quarter of the year and up from $64 billion a year ago.

''Mortgage volumes have been much stronger than anyone expected a year ago, or even three months ago,'' the bank's chief financial officer, Timothy J. Sloan, said in a conference call on Friday morning.

The bank also expanded its lending to customers for car purchases and credit cards, which Mr. Sloan attributed to the improving financial situation of American consumers. The improving credit quality of the bank's customers has allowed the bank to set aside less money for loan losses.

''While consumers are still under stress on average, their health continues to improve,'' Mr. Sloan said in an interview.

Revenue across Wells Fargo was up to $21.3 billion, from $20.4 billion in the period a year ago. Profit was up at each of the bank's three business divisions: wholesale banking, community banking and wealth management.

Wells took a hit on Thursday when it was announced that it would pay $175 million to settle Justice Department accusations that it discriminated against some minority homeowners seeking loans from 2004 to 2009. In making the settlement, Wells denied the charges.

Wells shares closed Friday up 3.2 percent, to $33.91. The company began the year trading at about $28.

This is a more complete version of the story than the one that appeared in print.

PHOTO: A Wells Fargo branch in Daly City, Calif. The bank reported that its second-quarter profit was $4.6 billion, a record for Wells. (PHOTOGRAPH BY JUSTIN SULLIVAN/GETTY IMAGES)